Floor clauses on Spanish mortgages declared void by the Suprem Court

Posted on Posted in Property Law, Publications
“Floor  clauses”, conditions of variable rate mortgages that prevented interest rates going down below a certain level (i.e. 3 %) while the benchmark (in the vast majority of cases, the Euribor) did, are null “in cases of lack of transparency “. This was decided unanimously on January  8  full of the First Chamber of the Supreme Court as reported in a brief press release.
However, the Supreme Court, in its note, said that: “It is declared that this statement does not involve repayment of amounts already paid.”
The decision, the first of the Supreme Court in this regard, is definitive. The note does not explain when there is a case of lack of transparency, and who will decide which clauses are null or not. The judgment  is still being drafted by the reporting judge, Antonio Salas Carceller, who shall communicate it to the parties. This action was  filed against three contracts of BBVA, Caixa Galicia then (today NCG Banco) and Cajamar. A floor clause between 2.5% and 3.25% (February Euribor closed at 0.594%) and cap clause (maximum interest) between 10% and 15% were agreed in the contracts reviewed by the Supreme Court.
The banks allegued that that the potential damage to customers caused by the floor clause was offset by the protection offered by the ceiling or cap clause . Although the reasoning of the Supreme Court to dismiss such allegation is still unknown, it is clear and has already been declared by lower Courts that when a “gap” between the two clauses is so wide it is clear that the only beneficiaries  of this “bracket” are the banks. In effect, the ceiling interest rate is extremely unlikely to ever be touched, whereas the floor interest rate is normally very close to the market interest rate.